I'm vice president for policy and director of technology studies at the Competitive Enterprise Institute where I write the annual Ten Thousand Commandments report on gov't regulation among much else. I'm a dad of four, can still do a handstand on a skateboard and enjoy custom motorcycles. I like the beach and our farm.

The complaint seems to be that collusion and smoke-filled rooms paved the way to a deal by which Apple gets a 30 percent cut of the publishers’ eBooks sold for Apple devices, while other vendors are forbidden from selling below a pre-specified price.

Such ordinary business deals, you see, involve a now-disparaged free market instrument called a “contract” and may not be permitted.

As Steve Jobs himself put it in the Walter Isaacson book, “We’ll go to [an] agency model, where you set the price, and we get our 30%, and yes, the customer pays a little more, but that’s what you want anyway.”

That quote was invoked as damning by the DoJ heroes.

But why would anybody stand aside and have books “iTuned” by Amazon’s cut rate kindle pricing, if they could compete against it somehow? So they reacted. But this deal is capable of being competed against, and it is also vulnerable to unknown future surprises that could torpedo it.

But now, thanks to DoJ getting involved, competitors may not need to respond to Apple and the publishers to better serve consumers and shareholders.

Step back from all this for a second: Now, you can actually buy an indestructible book that occupies no space, can be “written” on, highlighted and dog-eared yet not worn out; and that can be transported without being transported. Such a miracle, if we were honest, is worth hundreds and would have cost thousands were someone to have offered it a decade ago.

Post Your Comment

Post Your Reply

Forbes writers have the ability to call out member comments they find particularly interesting. Called-out comments are highlighted across the Forbes network. You'll be notified if your comment is called out.

Comments

The reason Apple is getting “cored” by the Obama-Holder DOJ is that Silicon Valley execs, starting with Steve Jobs, are left-wing Democrats who contributed major bucks to entrench an Obama-Holder regime that regards any major business success as a ripoff. Despite this experience you can expect his widow and the SiliValley elite to fund another 4 years of the most anti-business administration in history.

What’s happening is a classical case of price fixing in an attempt to kill ebooks altogether (note the reasons publishers give for pricing ebooks higher than mass market paperbacks despite added costs for ebooks being pennies per title). By locking in an artificially high price and then preventing any retailer from discounting that title, the agreement between Apple and the publishers distorts the market.

Worse than that, in my opinion, the publishing industry (with some exceptions), is trying to eliminate outlets where they can’t control what sells. For the past 10 years or so, publishers in this country could manufacture bestsellers and sink anything they wanted by manipulating availability. They want to go back to that.

There is dirtier laundry out there, which I won’t air here, but I recommend anyone interested visit The Business Rusch and read.

Oh, and the authors of those $15 and $20 ebooks? Most of them never see a single penny of royalties. Many of them are getting “statements” from publishers claiming they sold fewer copies than is physically possible. (again, The Business Rusch has a bunch of detail. (http://kriswrites.com/)

I don’t think the publishers want to kill ebooks at all. In fact I think they want ebooks to win over printed books because of the lower costs, less environmental impact etc. They want the same ‘value’ placed on the books because of a belief that consumers have a mindset built up from the paper days that cheap books are rote, formulaic trash. Which generally those $2.99 paperbacks were. It was a whole industry for a long while and a very well selling one.

If publishers can get the consumers in the value mindset to pay those trade prices for ebooks then their profits go up. They can use those extra pennies to pay for losses from the print side in a similar way to how tv nets push out cheap reality shows to cover losses from failed scripted shows.

Eventually the publishers will curb or drop paper sales for ebooks and the money, they feel, will roll in

If so, they will fail, and destroy themselves in the process. I’m not ever going to buy an e-book that costs more than the paper version. And I buy a lot of e-books (a lot more e-books than dead tree, on the order of 5 – 10 / month), while buying fewer and fewer books on paper (basically, if I don’t want to read it on a plane, I want an electronic version I can take anywhere and read anywhere). So publishers who try to screw their e-book readers will simply end up pushing us to publishers that aren’t idiots.

The Harry Potter books recently came out on Kindle. I was planning on buying them, when I saw the price for Kindle versions was greater than the price for paperbacks. No sale. (Yes, I own them all in hardback. Those books are packed away. For a reasonable price I would have supplemented them all w/ Kindle versions.)

In short, no, I don’t think the government should be getting involved. I think the market will settle this one, with idiot publishers garnering the reward, bankruptcy, that it deserves.

As a content producer, I love the “agency pricing” model. If for no other reason that I don’t want Apple, Amazon, or anyone else deciding that users should pay a higher markup for my work, than for someone elses work. If Amazon decides that my major competitor is going to be used as a “loss leader”, I’m screwed. The Agency Pricing model keeps that from happening.

You do realize that you don’t actually own the books you buy. See the Amazon customers who saw “their” copies of 1984 deleted when Amazon determined it didn’t have the license it thought it did.

What you have is a non-transferrable fully cancellable lease. That ‘inferior’ hard cover bestseller that you paid exactly the same amount (or perhaps even less) for at Barnes and Noble, well when you’re done with it you can sell it, you can lend it to a friend or (my personal practice) donate it to the public library.

E-books should cost less because the cost less to produce and they provide an inferior ownership interest.

As far as Apple goes, it might have gotten away with this plan if it hadn’t insisted that the publishers couldn’t make different deals with different retailers. Apple’s actions and those of the publishers that colluded to raise prices were both text book anti-competitive and are deservedly being targetted by DOJ (and deservedly targetted by DOJ are not words I ever expected to write about this DOJ).

Thus far there has been zero proof that Apple forced the publishers to force the same model on Amazon etc. The proof is that several if not publishers wanted the kind of control over pricing their brethren at the record labels were getting and felt they needed to all be one united front to get it. And proof that Apple was happy to give them such terms since it was the same rules they used for everything else.

Apple only said the actual sales price couldn’t be lower anywhere else. Not how that price was achieved or how the publishers got their cut

First of all, the “do not like, then do not by” logic only applies when there is sufficient competition on the market. Which this kind of agreement tries to eliminate.

Second, Technology progress always makes things cheaper and better, not more expensive and inferior in quality.

When Amazon sells digital books cheaper than physical ones it is competition.

When publishers try to control prices on digital books and rack them up, that hardly is competition. It is an attempt to eliminate competition.

The other thing is, while business always mention it`s “rights” it never mentions this little thing called consumer rights, which they, by the way, use to pressure the government(via re-election votes for example) to expand and guard.